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Why Levi Strauss Stock Surged 15% in December

By John Ballard - Updated Jan 6, 2020 at 3:47PM

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Strong e-commerce sales during the holidays left investors feeling optimistic about Levi's heading into 2020.

What happened

Shares of iconic jeans brand Levi Strauss (LEVI -1.62%) gained 15% last month, according to data provided by S&P Global Market Intelligence.

There wasn't any company-specific news to send the shares higher. Instead, strong e-commerce sales during the holidays provided a small lift for retail stocks over the last month. Strong online sales could particularly help Levi's, given that the direct-to-consumer (DTC) channel has been a strength for the brand. 

A man, standing next to a bicycle, wearing a Levi's trucker jacket.

Image source: Levi Strauss.

So what

Shares of Levi Strauss have underperformed since the initial public offering earlier last year. Weak sales in the Americas region stemming from slowing department store traffic has weighed on the stock in recent months. 

But investors are hopeful that Levi's can turn around its business with ongoing strength in the DTC channel, which makes up a third of the company's sales. Through the first three quarters of the year, the DTC channel posted growth of 13% on a constant-currency basis, driven by expansion, performance in the retail network, and strong e-commerce sales.

Now what

In late December, Mastercard SpendingPulse reported that holiday sales increased 3.4% (excluding auto), driven by a surge in online sales of 18.8% year over year. Obviously, with more consumers not only happy to spend money this holiday, but spending it online, that might lead to a better-than-expected quarter for Levi Strauss when it reports fourth-quarter earnings.

Currently, Wall Street analysts expect the company to report sales growth of 8.1% for the year. On the bottom line, non-GAAP (adjusted) earnings per share are expected to improve to $1.16 compared with $1.06 in 2018. 

As for the holiday quarter specifically, analysts expect Levi's to report $1.58 billion in sales and $0.21 in adjusted earnings per share. 

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